VaR

llti20
Posts: 3
Joined: Thu Jun 13, 2013 6:42 am

VaR

Postby llti20 » Tue Aug 13, 2013 7:34 am

Hi

In Puting VaR to Work, there is a somewhat strange convention of calling the % delta "delta" and the delta that I am more familiar with "dollar delta" or "$ delta". Is this convention used on the test? It is pretty obvious that if they tell me the delta is 5.5 that they are referring to percentage delta (a 1% drop in the price of the stock = 5.5% drop in the price of a call) but this is the first I have ever heard of actually using % delta.

Any clarification you could provide would be greatly appreciated.

vighnesh.mehta
Good Student
Posts: 16
Joined: Tue Sep 03, 2013 1:16 pm

VaR

Postby vighnesh.mehta » Thu Sep 05, 2013 5:01 am

Delta is calculated as the percentage change in call price divided percentage change in the stock price. This equation is used to interpret the VAR for an option given a change in the stock price. So in this case the delta is useful when you have to interpret the VAR for an option given the change in stock price, since the delta is calculated based on percentage.

On the other hand delta is a ratio and is calculated as the change in price of the call option to the change in price of the underlying asset. It is nothing but change in the price of the option give the change in price of the stock. The delta calculated here is use to hedge the portfolio of options and the stock.


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